Live Under Your Means

Live Under Your Means

I won’t say living within one’s means because all that does is put a person in coast mode making them vulnerable to life’s bumps in the road and unable to move forward when a positive situation presents itself. Save half your earnings and be ready and prudent when something comes around enabling you to take a few steps forward. I tend to explain by example and I’m a good one for this.

I admit I helped create some of the problems we have which is people borrowing to buy things they don’t need. Without a lot of detail I ran a finance business in a very conservative fashion and rejected more people than we approved. After all, it was my money at risk and not OPM. I say ran because I’m selling it along with all the houses I’ve accumulated over the past 10 years and retiring early.

I learned my lesson about living UNDER my means a few decades ago. I was discharged from the military in the late 80’s. I took a job at a defense contractor and was given assurances then that I’d have a job for life and could live a respectable lifestyle. The American dream finally landed and I was a happy camper.

I bought a place on credit, had credit cards, financed a car, and all the usual things people did to bury themselves in debt. It fell apart two years later. The job vanished and so did my faith and trust in anyone else but me. I was able to sell the house before it foreclosed. I got most of the debt paid off with the proceeds and honestly felt guilty about the remaining unpaid obligations I had. It wasn’t a lot but owing about $2000.00 when you’ve got nothing felt like all the money in the world.

From that point on I lived as though there won’t be any money coming in after next week. I discovered the truth that there are no guarantees in life. Whether the bank pays interest or not I always saved a good portion of my earnings. My initial thought was I didn’t want to be in a predicament of worry for a place to live or food to eat. The current business grew out of another over the course of a couple decades. All the while I lived as though I made very little and would work my tail off. I always saved. A disconnect grew between what I spent and what I could afford. One that went in the more logical direction and got bigger as time went on.

I always asked myself two questions prior to a purchase. Do I need this and can I pay it off by the end of the month. I made it a point not to carry any debt contrary to my business. I also realized that most advertising isn’t honest. The smiley faces seen is to make a person believe that what ever it is will make them happy. The question should be, will I be a week after I have it? The most common honest answer was no.

I broke my no credit rule in 03 buying the next house. To me the house which was just over 300k was grossly overpriced. This was in San Diego. The realtor tried to convince me to get something double that but I told him no that I wanted to be able to pay it off within a couple years if I had to. Another rule of thumb. Anyone selling anything is a liar regardless how nice they dress or present themselves.

Salespeople are only concerned about what is best for them, not you. Unlike most people I wasn’t about to max out my potential loan. That to me was stupid. Turned out, I was right. Even then I was under the mistaken impression that most people lived their life with some amount of financial caution. They don’t. That house ended up going to my x-wife in 07 along with one other property and about 500k in cash. She blew it all within a couple years and ended up broke. She’s like most people. Get their hands on a little money and blow it.

In 08/09 I caught a few lucky breaks. The stock market crashed and so did housing. I had the money to invest in both and it elevated my worth a lot. I also remarried. We bought several properties to make into rentals and the house we ended up living in. I bought them all in cash. I also did a good portion of the renovation work that needed done. I’m not afraid to use a hammer or saw. At the time few people had cash on hand and banks weren’t lending. At least, not at the ridiculously easy rates and terms they had a couple year prior. From stated income liar loans they switched to 20% down, a good credit score, and decent verified income. Next to no one could meet those more conservative qualities.

What it demonstrates is opportunities will present themselves provided you have the funds to take advantage of them. The problem most people have is keeping money once they have it. I’ve personally seen doctors applying for an $800 loan to buy their girlfriend an appliance. A doctor who cleared over 30K a month! He was declined because he had NSF activity on his bank statement. That was a stipulation I put in. If a person has any NSF activity they would be declined because they’re already demonstrating a level of irresponsibility. Although an extreme example the majority of applicants do live paycheck to paycheck which is unnecessary.

In the present moment we are so deep in debt as a country we can’t get out. There is no intention to either. All we’ll do is pay on the interest. On individual levels most families are as deep in debt or more so than what existed in the 08 crash. Google consumer debt and look at the history going back a decade or so. Factor in unfunded government liabilities and it gets worse. I think medicare and Social Security will get restricted and the ability to collect either will be greatly diminished later on. It will be a lot easier to tell a bunch of complaining old people you’re not getting anything than 20,30, and 40 somethings that we’re raising your taxes 50%. The later can fight back where as the former can’t. Don’t count on retirement income from anyone but yourself.

This time is a little different. The FED/Treasury won’t allow things to spiral out of control chasing a can down a hill with rate hikes after the impact of a financial calamity. They are preempting with rate increases even though the economy is by all superficial appearances doing quite well. Idea being to get a handle on inflation and other factors that can create a storm before it happens. Whether it works or not remains to be seen a few years from now.

As we know the current great economy is an illusion because a lot of the activity is being paid for by credit and not actual production. This is not new but hopefully things can be brought under control when things start to go bad. Our government will not allow chaos to take hold so don’t think they’ll permit it under any situation. Look at what happened last time in 08/09. By any means necessary they’ll bring it under control and they did. It wasn’t the prettiest solution but it worked in that keeping our society intact was the end result.

The real problem is people’s own spending habits. It was then and is now. Too much want, demand, and sense of entitlement and not enough money to pay for it. What politician is going to be honest and say that?

In summary I’d advise taking up an individual monetary policy of spending 50% of income and saving the rest. Yes, save half your money by what ever means necessary. Forget the new car when the existing one still runs. No vacations unless it’s to the local free park on a weekend. Kids enjoy that as much or more than they do Disney. Ditch the unnecessary cable. Do you really need 2 or more premium pay channels? Buy generic or store brand when possible. It’s made at the same factory as the name brand stuff. Live in a cheaper place if that’s breaking the bank. How much space do you really need? Look at the price per ounce of what you buy. Stores don’t always give size discounts. The clothes at Nordstrom are made in China just like the items at Walmart or K-mart. Look at the tags. You just won’t have the fancy bag to carry them home in.

Yes, I am beyond cheap so says my wife but that’s how you accumulate wealth, by not wasting money. Don’t get caught in the trap of living on less and also making less. Work as much or more than you did with a fervent attitude. In time you’ll have the money necessary to retire how you want and not be under the thumb of government or a pension that can vanish overnight.